Cashbuild’s latest financial results, released on Tuesday, have impressed sector analyst Anthony Clark so much that he has made a call that the building retailer’s share price could hit R500 over the next year or two.
The stock last traded at that level back in 2018.
The share closed almost 4% up at R311.21, following the release of the strong set of interim results for the half-year ended December 27, 2020.
Clark, from Small Talk Daily Research, tells Moneyweb that “Cashbuild is on track for a stellar FY2021 and FY2022” performance.
“Despite Cashbuild’s share price having risen 58% in the past six months, the prospects for the company remain bright in the second half of its financial year,” he says.
The group, which owns 317 stores across southern Africa and is set to acquire around 170 stores as part of a R1.07 billion deal to buy The Building Company (TBC) from Pepkor, reported that headline earnings per share (Heps) for its half-year more than doubled to 1 540.7 cents.
On the back of double-digit growth in revenue and gross profit, Cashbuild declared an interim dividend of 724 cents per ordinary share, compared to 435 cents per share for the corresponding period in 2019.
Clark says that while he anticipated a strong half-year for Cashbuild, the 102% rise in Heps and 66% increase in dividend was nevertheless “a sterling performance”.
“Management stated that trading in the first six weeks of H2 was up 24% and the conclusion of the R1 billion acquisition of TBC should be finalised shortly. That will add scale, operational cost savings and added profitability to Cashbuild in FY2022 and beyond,” he added.
Clark expects continued demand for building materials and the benefits of added scale from the acquisition of TBC to further boost Cashbuild.
“Having had two ‘buys’ on the stock – R178 in August 2020 and R230 in January 2021 – and a target of R350, the current share price remains attractive,” he says.
“I can see further upgrades coming to Cashbuild … It remains, alongside Italtile, the stock to own in the sector. I could see R500 as a target value based on current prospects.”
Sasfin Wealth equity analyst Alec Abraham, says the results show “better performance” than he expected. He was loath to give an indication on where he believes the stock price will go.
“Clearly there is more growth to come if Cashbuild can maintain its strong operational performance and profit margins,” he says.
“The results were very strong and driven by consumers spending more money on their homes due to Covid-19 and the work-from-home phenomenon. I expect this trend to continue this year.
‘Strong testament to current management’
“When Cashbuild’s CEO Werner de Jager came in a few years ago, he implemented a Saps stock control system and other operational tweaks over the years, which also seems to now be paying dividends at the right time,” says Abraham, adding that the performance is a strong testament to the current management.
“The fact that they increased margins and profitability in this market speaks volumes.”
He believes the acquisition of TBC will be “complementary” to the group’s current business, giving it more exposure to the upper end of the market.
“At Pepkor, it was a case of a clothing retailer running a hardware chain, which did not work well … Cashbuild knows the building supplies and hardware business. TBC will be a better fit for Cashbuild.
“While there may be a slight slip in profitability when TBC is integrated into the group, I believe Cashbuild can improve that business from an operational and margins perspective.”
Abraham says TBC had a turnover of around R8.2 billion in its last financial year and Cashbuild just over R10 billion. The deal will see Cashbuild almost double it turnover and grow its market share.
Listen to Nompu Siziba’s interview with Cashbuild CEO Werner de Jager (or read the transcript here):